Nigeria - All posts tagged Nigeria

OPEC members promised oil-supply curbs after a meeting Monday in Russia, but more oil is coming online globally over the next year and that will pressure oil prices.

The “pace of market rebalancing is threatened,” writes Simon Flowers, the chief analyst at Wood Mackenzie, the energy and commodities consulting firm based in Edinburgh, Scotland. He sees another year of $50-per-barrel oil prices ahead.

The frackers in the United States, Russian oil producers, national oil companies in Nigeria, Libya, Venezuela, Mexico and the Middle East — the list is long of enterprises that want and need to pump oil. They may ponder restraint, but the math is in no producer’s favor – especially OPEC’s.

Monday’s meeting of the minds in Russia, including members of the Organization of Oil Producing Countries, is helping boost oil prices today. Saudi Arabia said it would curb August exports and Nigeria agreed to limit production even though it is exempt, along with Libya, from OPEC-imposed production limits. There was also talk of extending oil production cuts a second time, past March 2018, CNBC reports. The United States Oil Fund (USO) was up 3%, Brazil’s Petroleo Brasileiro or Petrobras (PBR) rose 1.6%, Argentina’s YPF (YPF) was up 1.5% and China’s CNOOC (CEO) rose 0.3%. The iShares MSCI Saudi Arabia Capped exchange-traded fund (KSA) was down 0.2% in recent trading, and ExxonMobil (XOM) shares were up 0.6%.

From Wood Mackenzie‘s Flowers:

“Global supply will increase by 1.9 million barrels per day (b/d) next year without an extension of the OPEC agreement to cut production beyond March 2018. We forecast demand growth at 1.2 million b/d. There will be oversupply and sustained downward pressure on prices …

Wood Mackenzie believes OPEC, supported by key non-OPEC producers including Russia and Oman, will be stirred into action to avoid calamity. Production cuts will be extended by another nine months through to end 2018. Even with cuts there will be limited market rebalancing, and inventory will remain stubbornly high …

Recognizing the downside risks for the next two years, on 10 July we lowered our price forecasts by US$2.50 per barrel for each of the next two years to US$51/bbl in 2017 and US$50/bbl in 2018. The downturn looks set to stretch from three to four consecutive years of prices around US$50/bbl. Lower-for-longer is becoming a reality.”

The Organization of Petroleum Exporting Countries may have extended a cut in oil production, but the June data show an increase in production compared to May.

In OPEC’s July monthly oil-market report (a PDF), the organization projected a 2% rise in non-OPEC oil supplies in 2018, with the lion’s share from the United States, followed by Brazil, Canada and Russia. It sees supplies declining in Mexico and China.

In June, according to OPEC’s information from secondary sources, production rose the most in Libya and Nigeria, which are exempt from production cuts. But Angola and Saudi Arabia production was notably higher, as was production in Iraq and Iran. (See table for numbers.) The big exception: Venezuela, where oil production in June fell 13,600 barrels per day to 1.938 million barrels per day. Venezuela’s production is higher than that in Nigeria, as has been the case historically. OPEC production overall averaged 32.61 million barrels per day in June, an increase of 393,000 barrels per day over the previous month.

” … Venezuela’s rig count had fallen to 49 in July 2016. Venezuela did try and get more rigs drilling over the last year, hitting a high of 56 in April, but guess what: the rig count for Venezuela is for June 2017: back at 49.

Based on its own estimates that its production was collapsing — estimates similar to ours –Venezuela agreed with OPEC to cut production to 1.972 barrels per day (in other words giving what was already a fait accompli). Venezuela has fallen through that cut and is now 34,000 barrels per day below its quota — while as OPEC notes, everyone else’s production is going higher. Worse, if you look at the 2015 column on the chart above, Venezuela was producing 2.375 million barrels per day just a year and a half ago in 2015. That means Venezuela is producing 437,000 barrels per day less than it was 2 years ago, which at Venezuela’s average 2017 oil price of $43.60 (so far), means that Venezuela is losing over half a billion dollars every month; $6.9 billion a year…”

Despite all this, oil prices are higher today: the international Brent price was up 0.6% to $47.49 per barrel in recent trading, while the U.S. benchmark was up 1% to $45.49. The United States Oil Fund (USO) was up 0.8% and the Energy Select SPDR ETF (XLE) was up 0.5%. Shares of Brazil’s state-controlled oil producer and refiner Petróleo Brasileiro or Petrobras (PBR) were up 3.2% after Brazil’s securities watchdog reversed a decision ordering the state-controlled company to restate results, Reuters reports. Shares of China Petroleum & Chemical (SNP) were up 1.2%. South African chemicals producer Sasol (SSL) was up 2.6%.

The iShares MSCI Emerging Markets ETF (EEM) was up 1.8% in morning trading, with worries about higher U.S. interest rates pushed down the road after comments by Fed Chair Janet Yellen proved dovish. See our post After Yellen: A Dichotomy In China On Rates & Fed? Also see our free posts:

Nigeria and Libya aren’t bound to OPEC oil production cuts designed to boost prices, and that is not good for crude prices.

But markets seem to have taken data released Tuesday showing higher OPEC supply in stride, since the two nations are allowed to pump more than their compatriots in OPEC. OPEC’s report for May (a PDF), shows that output rose by 336,000 barrels per day to 32.14 million, incorporating government and secondary data sources. Libya, Nigeria and Iraq — each with internal conflicts and economies dependent on oil revenue — contributed to the increase. Nigeria and Libya are exempt from production cuts extended for the second half of this year, and each increased oil production by more than 174 million barrels per day last month, making up for most of the increase but offset by reductions in Angola, the United Arab Emirates and Venezuela. (See table).

The U.S. Energy Information Administration releases weekly EIA petroleum data Wednesday morning. The U.S. price of oil slipped 0.2% Tuesday to $45.99 per barrel, and the international Brent price was flat at $48.28. The United States Oil Fund (USO) was up 0.8% in regular trading, and slipped 1% in subsequent trading.

The iShares MSCI Saudi Arabia Capped exchange-traded fund (KSA) was flat, the VanEck Vectors Russia ETF (RSX) was up 0.4%, and the Global X MSCI Nigeria ETF (NGE) was up 1.5%. Among oil producers, ExxonMobil (XOM) was up fractionally but slipped after hours, China’s CNOOC (CEO) was up 1.2% and Brazil’s Petroleo Brasileiro or Petrobras (PBR) was up 0.7%.

Greece rallied on news that the economy grew ever so slightly, by 0.1% in the first quarter, offering hope that a financial agreement with Greece’s European creditors can progress ahead of a June deadline. In addition, the Greek government announced a $7.9 billion coastal development with a resort, apartments and shopping that will privatize property that was Athens’ former international airport, The Guardian reports. The site also includes some land used in the 2004 Olympics. Chinese conglomerate Fosun, which owns British tour company Thomas Cook, along with investors in Abu Dhabi and China, are backing the project. Subscribers can read the column, “Time To Tiptoe Back Into Greek Stocks.”

In neighboring Turkey, stocks got a lift as the Russian government lifted sanctions on some agricultural products, and on Turkish companies involved in construction and tourism. The restrictions were imposed after Turkey shot down a Russian fighter jet in November 2015, the Daily Sabah reports. Two restrictions, visa-free travel for Turkish citizens in Russia, and Turkish tomato exports to Russia, remain.

Three of the largest economies in sub-Saharan Africa may continue to struggle as politics take center stage.

Capital Economics’ Chief emerging markets economists Neil Shearing and John Ashbourne sum up a fresh report on the region thusly:

“Events over the past month have raised questions about the positions of the presidents of Sub-Saharan Africa’s three largest economies. Nigeria’s President Muhammadu Buhari missed a key speech commemorating the two year anniversary of his own inauguration, prompting concerns that his health is worse than had been previously reported. The 74 year-old has spent much of 2017 in hospital in London.

After several denials, the Angolan government eventually admitted that President José Eduardo dos Santos also spent May in Europe for medical reasons.

South Africa’s president is in better health; but President Jacob Zuma had to face down yet another attempt by disgruntled members of the ruling ANC [African National Congress party] to remove him from office. The embattled president won a clear victory, but this latest struggle has probably increased tensions within the ruling party. We expect that ailing presidents and a series of political contests – including national elections in Angola and Kenya and a key political conference in South Africa – will delay key policy-making decisions across much of Africa this year.”

The Global X MSCI Nigeria exchange-traded fund (NGE) is up 1.4% this month, but is down more than 4% this year. The iShares MSCI Frontier 100 ETF (FM) is up 1.9% this month, and is up nearly 18% this year.

The iShares MSCI South Africa ETF (EZA), down 2% today, is up 4% this month, and up 16% this year.

The VanEckVectors Africa ETF (AFK), down 1.4% today, is up 2% this month, and up 9% this year.

Helima Croft, the commodities strategist at RBC Capital Markets, expects the Organization of Petroleum Exporting Countries to extend the output cut at its May 25 meeting, because they can’t withstand a big price plunge. However, the Saudis face an uphill battle domestically. The good news for the Saudis and lower-for-longer oil prices: many OPEC producers most likely to over-produce — cheat on production caps — face serious domestic challenges to ramping up production. Here are excerpts from a lengthy report from Croft, with commodity strategists Christopher Louney and Michael Tran:

“With limited public appetite for austerity measures, another sharp drop in prices would cause deeper deficits and incite ballooning borrowing even for the flusher GCC producers (Cooperation Council for the Arab States of the Gulf). For the most vulnerable countries, such as Venezuela, a southbound price path could easily end in a complete collapse. The risk posed to sovereign producers by a significant price drop is elevated in part because there is not an abundance of extra barrels that can easily be brought onto the market, at least not enough to offset a significant slide in prices. Hence, it certainly remains our base case that OPEC will maintain current production levels … Recent Saudi and Russian comments have helped solidify the view that OPEC will opt to extend the cuts at least through the back half of the year …

On Saudi Arabia — “The driver of the bus“: The 2016 deficit came in at $79 billion, down from a record breaking $97 billion in 2015 … [with] an even more ambitious deficit goal of just $53 billion this year. However, two-thirds of Saudis work for the state, [and with] the decision to restore “all allowances, financial benefits, and bonuses,” that deficit goal looks ever more elusive … While the government insists that it was able to restore the popular benefits precisely because of the better economic environment, the country continues to face some strong headwinds with the IMF forecasting last month that GDP growth will slow from 1.4% in 2016 to 0.4% this year. Additionally, the Kingdom recently tapped international debt markets for the second time in six months, with a $9 billion Islamic bond sale. Furthermore, the military campaign in Yemen – which some leading experts contend is costing tens of millions of dollars a day – continues to strain Saudi finances … the economics of the most important Vision 2030 policy initiative – the planned 2018 partial listing of Saudi Aramco – became much more attractive in the improved price environment. All of these gains would be at risk for reversal if the Saudi government opted to wage the market share war once again …

On Iran – “on a collision course” : Iran will hold presidential elections one week prior to the May 25 OPEC meeting and the outcome could have clear implications for the durability of the nuclear deal and the sanctions relief that enabled the country’s oil exports to come back. While oil exports have risen, many Iranians believe that the deal has yielded insufficient economic benefits and thus President Rouhani is not entirely assured of re-election … the election of President Donald Trump has significantly elevated the risk of a U.S. sanctions snap back that could further deter foreign energy firms from investing in the country and hinder Iran’s ability to place its barrels abroad. Every 90 days the US President is required to certify for Congress that Iran is fully compliant … there are several new sanctions bills that have been introduced in Congress …

On Venezuela: “impending implosion”: No OPEC country has fallen as far and fast since the oil price decline began as Venezuela and all economic indicators continue to point decidedly in one direction – down. The Venezuelan economy shrank by 19% and inflation approached 700% in 2016. Food shortages have become so pronounced that the average adult in Venezuela lost 19 pounds last year. Recent health ministry data showed cases of infant mortality rose 30%, maternal mortality 65% and instances of malaria climbed by 76% in 2016. Public protests are proliferating, with at least 40 people killed in street demonstrations in April. Oil production continues its downward drift due to service provider cuts, power shortages, inability to obtain imports and irregular salary payments. The oil question is whether current conditions could set the stage for the type of industrial action that cut exports by nearly 80% in the early 2000s …

Croft notes that Venezuela would likely rank at the top of a list of producers who will cheat if production cuts come to pass. Libya and Nigeria are also likely to ramp up output, though “their output remains well below installed capacity and their production increase are at a high risk of reversal because of ongoing security challenges.” She explains more:

On Nigeria – “troubled times”: has been especially hard hit by the oil price downturn. Last year the country slid into recession for the first time in 25 years, the annual inflation level doubled to 18.6%, and oil output cratered due to the revival of armed militancy in the Niger Delta. Adding to these headwinds, President Muhammadu Buhari has twice left the country this year for emergency medical treatment, raising the prospect of a polarizing leadership transition. In his absence, VP Yemi Osinbajo will run the daily affairs and he has received praise for his past performance. However, his permanent elevation could cause considerable discontent in the mostly Muslim north, as it would again upend the informal regional power rotation agreement that helped end military rule in 1999. In the event of a crisis, Nigeria would struggle to make the payments needed to keep agitators on the sidelines …

On Libya – “handle with care” : we reiterate our view that Libyan output will continue to fluctuate and any output increase remains at risk for reversal. … Libyan output has been particularly volatile this quarter because of rolling facility shut-ins caused by armed actors battling for control of the oil infrastructure. We would advise treating all announcements that Libya has finally turned the corner and that output will exceed 1 mb/d with extreme caution as long as the security and political problems remain so pronounced …”

The United States Oil Fund (USO) is up 1.9% today but the iShares MSCI Saudi Arabia Capped exchange-traded fund (KSA) is down 0.6% and the Global X MSCI Nigeria ETF (NGE) is down 2.4%. The WisdomTree Middle East Dividend Fund (GULF) is up 0.5%. Colombia’s Ecopetrol (EC) is up 3.5% after reporting a rise in first quarter net income, and Brazil’s Petroleo Brasileiro (PBR) is up another 1.9% today after jumping last week on a strong first quarter. The iShares Latin America 40 ETF (ILF) is up 15 today.

With Nigeria’s ailing President Muhammadu Buhari seeking emergency medical treatment outside the country for a second time, the prospect of a “polarizing political transition” is real.

So says Helima Croft, head of commodity strategy at RBC Capital Markets. Croft worked for the U.S. State Department in Africa, with a focus on Nigeria, before moving to the private sector, and told Barron’s last fall that Nigeria has been a perennial disappointment in efforts to smooth out its tribal politics and harness its considerable oil wealth. She writes:

” … a polarizing political transition could exacerbate regional and sectarian divisions as well as have implications for oil output. This marks the second time this year that the 74-year-old Buhari, a northern ex-general, has sought medical assistance in London for an undisclosed ailment. His last stay stretched from January to mid-March. Though he did greet the rescued Boko Haram captives before leaving, he has rarely been seen in public in recent weeks and is reportedly having trouble eating and drinking. In his absence, Vice President Yemi Osinbajo, the former Lagos State attorney general and Christian Pastor, will run the day-today affairs of the country. While Osinbajo received considerable praise for past performance in the presidential seat, a permanent elevation could cause considerable discontent in the mostly Muslim north. Such an elevation would once again upend the informal regional power rotation agreement that helped end military rule in 1999 and would deny the north a full eight years of the presidency. Hence, northern power brokers would likely move to block such a transition. Though there could be considerable hard feelings in Nigeria’s northern region, an elevation of Osinbajo would likely be well received in the Niger Delta region. His visits to the embattled oil region and his pledge to address the core grievances of these communities have been well received by local leaders. President Buhari to date has yet to visit the Niger Delta and he ended the large-scale payments to former Niger Delta militant leaders, which helped ensure the relative peace in the oil region from 2009 to 2015. A return to past practices could help boost oil output in the near term while leaving the structural problems unchanged.”

The illiquid Global X MSCI Nigeria exchange-traded fund (NGE) has been trading erratically: it is down more than 6% this year, and down nearly 1% in May, but the ETF is up 7.5% this week despite negative political headlines. The VanEckVectors Africa Index ETF (AFK), which is only slightly larger with $69 million in assets, is up 8.6% this year, up 1.6% this month, and up 3.9% this week.

On Monday, the Global X MSCI Nigeria exchange-traded fund (NGE) closed down 1.3%, which is within a penny of its 52-week low. The ETF is down 14% this year and down 43% over 12 months as the nation, dependent on oil revenue, introduced currency reforms that depreciated the naira. Nigeria is a member of OPEC. The VanEckVectors Africa Index ETF (AFK) rose 1% Monday, and is up nearly 6% this year and up more than 3% over the past year.

Teneo Intelligence Analyst Manji Cheto says the confirmation of Buhari’s continued ill health was not a surprise because he left his vested powers in the hands of Vice Persident Yemi Osinbajo even after returning from a seven-week medical trip. Cheto writes:

” … the key thing to watch this time around, especially over the coming days and weeks (and possibly months) is growing talk over the possible premature termination of the president’s tenure. There are already rumors to this effect especially as fears over Buhari’s deteriorating medical condition – in part driven by the notable decline in his public engagements, and reports confirming that he has repeatedly missed cabinet meetings in the past month – intensify …”

Even if forced out, Buhari’s successor is the vice president according to the constitution. The process, however, is likely to be weighed down by the politics of naming Osinbajo’s vice president, Cheto writes.

Among the exchange-traded country-funds invested in developing economies that we are watching, Poland is a big winner so far this year and Greece continues to sink.

Here are two short lists of funds: the top ones have defied the odds so far this year, with emerging markets withstanding the elevation of protectionist U.S. President Donald J. Trump, and rising U.S. interest rates. The first three on the loser list have one thing in common: they are oil producers in a weak environment for crude prices:

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.